Pound Euro (GBP/EUR) Exchange Rate Mixed amid Economic Pessimism
The Pound Euro (GBP/EUR) exchange rate is wavering this morning following weaker-than-expected German data.
At the time of writing the GBP/EUR exchange rate is trading at around €1.1680, virtually unchanged from this morning’s opening rate.
Euro (EUR) Wobbles on Bleak German Data
The Euro (EUR) is volatile this morning following a surprise downtick in the German industrial sector.
Germany industrial production was reported to have unexpectedly contracted by 0.4% throughout October, as opposed to growing by 0.2%. Economists expect to see inflated energy prices, waning foreign demand and souring economic conditions pressure German production heading into the fourth quarter.
Quentin Fitzsimmons, a senior portfolio manager at T Rowe Price, commented:
‘The ECB is the most likely central bank to have overtightened — possibly significantly.
‘Recession risks are being understated in the eurozone [which] has relied on very low interest rates for a very long time and had an enormously swift move to much higher policy rates.’
As the industry-heavy German economy weakens, the likelihood of another interest rate hike from the European Central Bank appears increasingly unlikely, leaving EUR to face mixed trading conditions today.
Pound (GBP) Stumbles amid Data Lull
The Pound (GBP) is fluctuating this morning as a lack of UK data continues to undermine investor interest.
While a cautiously upbeat market mood offers GBP some modest support, economic gloom serves to undermine Sterling sentiment. Furthermore, Bank of England (BoE) commentary took a notably dovish turn yesterday, during BoE Governor Andrew Bailey’s latest address.
Bailey commented on the BoE’s latest Financial Stability Report while at a press conference, stating:
‘Rates are likely to need to remain at these levels for an extended period to bring inflation back to target on a sustained basis.
‘The full effect of higher interest rates is yet to come through. Therefore, we remain vigilant to financial stability risks that might arise.’
While Bailey retreats from his recently hawkish stance, an apparent lack of economic certainty within the central bank may leave GBP rudderless for the remainder of today’s session.
Pound Euro Exchange Rate Forecast: German Inflation to Drive Volatility?
Looking ahead, German inflation data is due for release tomorrow morning, and is forecast to report a cooling of 0.4%. Should the data print in line with expectations, cooling German inflation may further undercut already waning ECB rate hike bets, thereby denting the Euro.
Otherwise, a lack of notable data in the coming days may leave the Pound Euro exchange rate vulnerable to shifts in risk appetite. While this morning’s cautiously upbeat mood serves to keep the increasingly risk-sensitive Pound afloat, movement towards more bearish trading conditions could see the safe-haven Euro take precedent.
As surmounting global inflationary pressures and rising geopolitical tensions reinforce market uncertainty, a safe-haven dash from investors could see GBP slump.